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NC will soon eliminate corporate taxes. Democrats say it'll force working people to pay more.

Republicans want corporations to pay no income taxes in North Carolina, saying the state's budget is too big. But even the Chamber of Commerce said it didn't ask for that, and Democrats say it will further hurt schools, affordable housing efforts, mental health services and more.

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Golden doors in the North Carolina State Legislative Building
By
Will Doran
, WRAL state government reporter

By the end of this decade, Republicans in the North Carolina General Assembly plan to stop making businesses pay taxes.

It was a move they hailed, when they put it into motion in 2021, as a prudent down-sizing of state government. But as the legislature gears up this spring to write the next state budget, Democrats are calling for a halt to those plans, saying the state government will lose an additional $1 billion a year if the tax cuts continue as planned. The current state budget is $28 billion.

That estimated $1 billion decrease comes on top of previous tax cuts over the last decade that Republicans have passed into law, praising them for putting money back into people's pockets. Democrats have criticized the cuts as harming essential services.

"We simply cannot afford to erase a billion dollars from state revenue," Durham Democratic Rep. Marcia Morey said at a press conference Monday with other liberal leaders. "That will hurt our public schools. It will deprive North Carolinians of public services like longer waits — if that's possible — at the Department of Motor Vehicles to get your license. More canceled bus routes. Delays in court Proceedings and health appointments. Delays in getting your own tax return."

The corporate tax rate has already dropped from 7% to 2.5% under GOP control, and the Democrats say that's enough; the state will lose too much if it drops all the way to 0% by 2030 as planned.

The NC Chamber, which represents business interests in the state, has said it feels the current 2.5% rate is already competitive compared to other states and that it hasn’t asked lawmakers to drop the rate to zero.

Republican leaders, though, have said they plan to stay the course. In fact, they may accelerate tax cuts passed in 2021, given the state’s recent budget surpluses. When the plan for the new cuts first passed in 2021, Sen. Phil Berger, that chamber's top Republican leader, said the fact that the state still had budget surpluses, even after previous rounds of GOP-backed tax cuts, only emphasized the state's ability to handle further tax cuts.

"The multibillion-dollar surpluses these policies helped create are evidence that they’re working, and it means we can cut taxes even more," he said at the time.

In the budget proposal he released last week, Gov. Roy Cooper called on lawmakers to keep the corporate rate at 2.5% and to forego further personal income tax cuts for people making more than $200,000 a year. For those making less, Cooper would take the tax down to 3.99% as planned.

That budget was dead on arrival at the General Assembly, but Democrats at the legislature have kept up the message. At their press conference Monday they said it's simply unfair to the state's 10.5 million residents to let corporations keep benefiting from the state's roads, water and schools, without having to pay any income taxes to help fund them.

"In 2021, corporate profits grew by 25% even as median wages fell for workers," said Sen. Lisa Grafstein, a Raleigh Democrat.

She added that unlike when Republicans have cut personal income taxes in the past, cutting corporate taxes wouldn't result in much more money suddenly available to be spent on the local economy. More than 70% of the corporate tax income taxes North Carolina receives come from out-of-state companies, she said.

She would rather that money "be spent here in North Carolina," Grafstein added, on things like affordable housing, child care, mental health services and public schools.

That's highly unlikely to happen while Republicans remain in charge at the state legislature.

"We have consistently collected more revenue from taxpayers than we need to operate a sound state government," Newton, a Cabarrus County Republican, said in 2021 when the Senate voted to cut corporate taxes to zero.

Newton and other legislative Republican leaders recently lost a case at the North Carolina Supreme Court over education funding. The court ruled that their low levels of education funding in recent budgets violated the state constitution's guarantee of "a sound, basic education" for all children.

The head of the North Carolina Association of Educators, the state's largest teacher lobbying group, also attended Monday's press conference to call for keeping the corporate income tax rate at its current 2.5% rate.

Tamika Walker Kelly, the group's executive director, said lawmakers have a choice as they work on this upcoming budget, knowing that teachers aren't getting paid enough to keep up with inflation and that classrooms constantly lack supplies.

"They could choose our students," she said. "They can choose our classrooms and students over corporations."

Many if not most state employees, including teachers, are expected to get a raise in the upcoming budget. Cooper called for 18% raises, saying the state could afford it — and much more — by holding off on further corporate income taxes. Legislative GOP leaders ridiculed his proposal as irresponsible, but have said they are considering some raises for state workers.

WRAL state government reporter Travis Fain contributed.

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